Analysis 2001: trying year for carriers, ISPs

The network equipment sector suffered dramatic losses in 2001, as major vendors laid off staff. Additionally, carriers, ISPs, and enterprises opted to squeeze more value out of their existing networks, rather than fund build outs.

The networking technologies that made headlines during the year were the ones that either delivered more services over the same old infrastructures, such as Ethernet over copper, or fine-tuned performance, such as intelligent routing platforms, smart edge devices, and network management software.

Equipment makers relentlessly touted new, high-bandwidth applications, such as VoIP (voice over IP) and videoconferencing. Although both of those technologies showed promising gains in 2001, their much-anticipated market potential remained largely unfulfilled.

In fact, enterprises curtailed their equipment purchasing habits so drastically that many vendors that had traditionally made the bulk of their sales to enterprises – most notably, San Jose, Calif.-based Cisco Systems Inc. – were forced to announce massive layoffs and disappointing earnings statements.

For carriers and ISPs, the economic fallout led to several high-profile failures. Rhythms NetConnections Inc. in Englewood, Colo., was acquired by WorldCom Inc., and San Francisco-based NorthPoint Communications Group Inc. shut down its network and sold its assets to AT&T Corp., in Basking Ridge, N.J.

Late in 2001, AT&T’s broadband cable moves also sputtered, after a year in which the company made the major decision to break into four pieces and spin off its wireless business.

Painted into a corner, carriers adopted a two-pronged strategy that involved, first, reducing expenses by streamlining network operations, and second, deriving revenues by offering new services, such as VPNs, personal firewalls, and virus detection.

“All of the ISPs have been going with a ‘build it and they will come’ mentality,” said Jennifer Brooks, director of commercial engineering at Clinton, Miss.-based carrier WorldCom. “But now, with the economic turndown, we’re seeing an overwhelming need to reduce network costs, both in the backbone and the edge.”

Seeking new markets, many carriers and vendors turned to the metropolitan areas. But the last-mile access problem continued to plague networkers, who consequently looked for new, inexpensive ways to deliver last-mile optical connectivity – through the air, over power lines, even through sewers.

On the telecom policy front, much time was spent by companies large and small bickering over controversial broadband legislation – the Internet Freedom and Broadband Deployment Act of 2001, crafted by W.J. Tauzin (R-La.) and John Dingell (D-Mich.).

The highly anticipated bill was introduced in April to jumpstart wide scale deployment of broadband by unravelling some of the regulations lawmakers say are holding back the Baby Bells.

After many fits and starts, the bill was shelved following the terrorist attacks, although Tauzin has signalled it will come up for a vote on the floor of the House of Representatives in January.

Many question whether the legislation – hated by virtually all but the Bell operating companies – has the votes to pass the Senate. And absent any defining moves from Congress or the Federal Communications Commission, which ushered in Michael Powell as its new chairman, the industry has been marked largely by efforts of self-survival.